Dr Volker Beissenhirtz 1. In the judgement of the European Court of Justice (ECJ) dated 16 December 2008 (C-210/06) regarding the case “Cartesio” the question was decided whether a company in country A may transfer their registered seat to country B whilst simultaneously retaining their corporate structure as a registered business in country A.
The decision was based on the case of a Hungarian company with a registered seat in Hungary which made an application to the Hungarian Commercial Register to enter their registered offices as being in Italy. They took legal action against the rejection of this entry. The question was submitted to the ECJ. The ECJ held – which was quite surprisingly based on the opinion of the Advocate-General P. Maduro – that there was no violation of the freedom of establishment in this case, which is regulated in Article 43, 48 EC.
That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation.
Additionally, the ECJ also decided that a “conversion” into a company governed by the law of the Member State to which it has moved must always be possible. In this case the company may not be automatically dissolved and liquidated as a result of the company transferring their registered seat. A mandatory liquidation would represent an unjustified violation of the freedom of establishment.
2. In its decision of 12 February 2009 the ECJ decided in the case C-339/07 on the question which court should be regarded as being competent for cross-border avoidance actions:
“Article 3 Para. 1 of the Act (EG) No. Article 3(1) of Council Regulation (EC) No 1346/2000 must be interpreted as meaning that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to decide an action to set a transaction aside by virtue of insolvency that is brought against a person whose registered office is in another Member State”.
According to this decision the court of the Member State opening the insolvency is competent at least for cross-border matters relating to avoidance actions.. The ruling which followed the opinion of the Advocate-General represents a veritable revolution for the legal situation in Germany: the principle of the so-called “vis attractiva concursus”, thus the concentration of the legal disputes relating to insolvency proceedings at the courts of the same Member State. This principle was previously unknown under German Law. Therefore, the German Insolvency Administrator is now on equal terms with other European colleagues who already previously had the jurisdiction of the insolvency courts for actions for rescission at their disposal. This will in fact improve his position if he no longer has the burden of filing the action in foreign courts.
Practice will show whether the concentration of jurisdiction as stipulated by the European Supreme Court will be restricted to matters relating to avoidance or whether the courts of the Member State opening the proceedings will also be competent for actions relating to the provision of capital or even disputes relating to tax rebates. However, at regarding legal actions relating to legal concepts like“equity replacty loans” or “equity substituting securities” which is virtually unknown abroad, this concentration of jurisdiction will in fact relieve the German insolvency administrator inforcing these legal institutions.
3. The decision by the German Supreme Court of 29. May 2008 (IX ZB 103/07) dealt with the effects of insolvency proceedings opened in Germany with the knowledge of previously commenced insolvency proceedings abroad. The decision mainly with previously entered liabilities. The German Supreme Court ruled that, as the insolvency proceedings were not opened in Germany, liabilities of the estate could not arise. Legal actions of the “bogus administrator” are void.
The German Supreme Court, however, left the question unanswered as to how it would have ruled if the insolvency court had opened the provisional proceedings whilst being unaware of the previously opened insolvency proceedings abroad. Ultimately the lack of such awareness cannot induce any other legal consequence. The application priority and the legal effects of the EC Council Regulation on Insolvency Proceedings are not affected by subjective elements. Merely with regard to secondary claims the knowledge of the insolvency administrator may be taken into consideration.
4. In the process of the first international insolvency cases, such as Brochier or PIN, the question was raised whether German so-called “provisional” insolvency proceedings should be recognised as a main proceedings in accordance with Article 3, 16 EC Council Regulation on Insolvency Proceedings and thus could lead to an impediment of further applications that are made in other EU countries to open main insolvency proceedings. In this respect, decisions from an Austrian and an English court are now available.
The Higher Regional Court of Innsbruck (Decision of 8. July 2008 – 1 R 176/08d) ruled that at least the German so-called “strong” provisional insolvency administration must be recognised as such a main proceedings. In the relevant case, the insolvency court Freiburg (Germany) with decision of 21 May 2008 opened preliminary insolvency proceedings, appointed a German provisional insolvency administrator and issued a restraining order against the debtor and assigned to the provisional insolvency administrator the authorization for administration and the right to dispose of the debtors assets(so-called “strong” provisional insolvency administrator).
The decision of the Higher Regional Court Innsbruck in this case is completely in line with the intention of the decision by the European Supreme Court in the matter “Eurofood” (European Supreme Court (EuGH, Judgement of 02.05.2006 – C -341/04). Accordingly the preliminary commencement of insolvency proceedings and the confiscation of the supposedly insolvent estate are sufficient to presume that main insolvency proceedings were commenced. Both were applicable in this case.
The English County Court of Croydon made a decision along the same lines on 21 October 2008 – No. 1256/08. In this case the County Court of Munich appointed a provisional “strong” insolvency administrator for the assets of an insolvent debtor. These preliminary insolvency proceedings took priority over the insolvency proceedings which were commenced in England on 23 September 2008. The English court also accepted the German provisional insolvency proceedings with the implementation of a "strong” provisional administrator as binding.
These decisions will therefore generally contribute to the legal certainty and predictability in insolvency proceedings. A German provisional insolvency administrator will – if international involvement is expected during the insolvency - however have to increasingly accept the unbeloved status of a “strong” provisional administrator with all corresponding liability risks.
Dr Volker Beissenhirtz LL.M.
Attorney at Law in Germany
Registered European Lawyer (London)
The decision was based on the case of a Hungarian company with a registered seat in Hungary which made an application to the Hungarian Commercial Register to enter their registered offices as being in Italy. They took legal action against the rejection of this entry. The question was submitted to the ECJ. The ECJ held – which was quite surprisingly based on the opinion of the Advocate-General P. Maduro – that there was no violation of the freedom of establishment in this case, which is regulated in Article 43, 48 EC.
That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation.
Additionally, the ECJ also decided that a “conversion” into a company governed by the law of the Member State to which it has moved must always be possible. In this case the company may not be automatically dissolved and liquidated as a result of the company transferring their registered seat. A mandatory liquidation would represent an unjustified violation of the freedom of establishment.
2. In its decision of 12 February 2009 the ECJ decided in the case C-339/07 on the question which court should be regarded as being competent for cross-border avoidance actions:
“Article 3 Para. 1 of the Act (EG) No. Article 3(1) of Council Regulation (EC) No 1346/2000 must be interpreted as meaning that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to decide an action to set a transaction aside by virtue of insolvency that is brought against a person whose registered office is in another Member State”.
According to this decision the court of the Member State opening the insolvency is competent at least for cross-border matters relating to avoidance actions.. The ruling which followed the opinion of the Advocate-General represents a veritable revolution for the legal situation in Germany: the principle of the so-called “vis attractiva concursus”, thus the concentration of the legal disputes relating to insolvency proceedings at the courts of the same Member State. This principle was previously unknown under German Law. Therefore, the German Insolvency Administrator is now on equal terms with other European colleagues who already previously had the jurisdiction of the insolvency courts for actions for rescission at their disposal. This will in fact improve his position if he no longer has the burden of filing the action in foreign courts.
Practice will show whether the concentration of jurisdiction as stipulated by the European Supreme Court will be restricted to matters relating to avoidance or whether the courts of the Member State opening the proceedings will also be competent for actions relating to the provision of capital or even disputes relating to tax rebates. However, at regarding legal actions relating to legal concepts like“equity replacty loans” or “equity substituting securities” which is virtually unknown abroad, this concentration of jurisdiction will in fact relieve the German insolvency administrator inforcing these legal institutions.
3. The decision by the German Supreme Court of 29. May 2008 (IX ZB 103/07) dealt with the effects of insolvency proceedings opened in Germany with the knowledge of previously commenced insolvency proceedings abroad. The decision mainly with previously entered liabilities. The German Supreme Court ruled that, as the insolvency proceedings were not opened in Germany, liabilities of the estate could not arise. Legal actions of the “bogus administrator” are void.
The German Supreme Court, however, left the question unanswered as to how it would have ruled if the insolvency court had opened the provisional proceedings whilst being unaware of the previously opened insolvency proceedings abroad. Ultimately the lack of such awareness cannot induce any other legal consequence. The application priority and the legal effects of the EC Council Regulation on Insolvency Proceedings are not affected by subjective elements. Merely with regard to secondary claims the knowledge of the insolvency administrator may be taken into consideration.
4. In the process of the first international insolvency cases, such as Brochier or PIN, the question was raised whether German so-called “provisional” insolvency proceedings should be recognised as a main proceedings in accordance with Article 3, 16 EC Council Regulation on Insolvency Proceedings and thus could lead to an impediment of further applications that are made in other EU countries to open main insolvency proceedings. In this respect, decisions from an Austrian and an English court are now available.
The Higher Regional Court of Innsbruck (Decision of 8. July 2008 – 1 R 176/08d) ruled that at least the German so-called “strong” provisional insolvency administration must be recognised as such a main proceedings. In the relevant case, the insolvency court Freiburg (Germany) with decision of 21 May 2008 opened preliminary insolvency proceedings, appointed a German provisional insolvency administrator and issued a restraining order against the debtor and assigned to the provisional insolvency administrator the authorization for administration and the right to dispose of the debtors assets(so-called “strong” provisional insolvency administrator).
The decision of the Higher Regional Court Innsbruck in this case is completely in line with the intention of the decision by the European Supreme Court in the matter “Eurofood” (European Supreme Court (EuGH, Judgement of 02.05.2006 – C -341/04). Accordingly the preliminary commencement of insolvency proceedings and the confiscation of the supposedly insolvent estate are sufficient to presume that main insolvency proceedings were commenced. Both were applicable in this case.
The English County Court of Croydon made a decision along the same lines on 21 October 2008 – No. 1256/08. In this case the County Court of Munich appointed a provisional “strong” insolvency administrator for the assets of an insolvent debtor. These preliminary insolvency proceedings took priority over the insolvency proceedings which were commenced in England on 23 September 2008. The English court also accepted the German provisional insolvency proceedings with the implementation of a "strong” provisional administrator as binding.
These decisions will therefore generally contribute to the legal certainty and predictability in insolvency proceedings. A German provisional insolvency administrator will – if international involvement is expected during the insolvency - however have to increasingly accept the unbeloved status of a “strong” provisional administrator with all corresponding liability risks.
Dr Volker Beissenhirtz LL.M.
Attorney at Law in Germany
Registered European Lawyer (London)